If You Know What To Do And How To Do It, You Can Obtain A 100% LTV Commercial Mortgage
One of the main ways that commercial mortgages differ from residential mortgages is the amount of deposit you normally have to put down. A commercial mortgage typically requires a larger deposit than a residential mortgage and it is not unusual for the maximum 'loan to value' (LTV) to be 75%, meaning you need a 25% deposit.
Often, it can be hard to find the 25% deposit you need to buy a commercial property because your cash is tied up in your business. So, our article explains how it is possible to obtain a commercial mortgage of over 75%.
Additional Security Lenders like to minimise their risk when agreeing commercial mortgages. So, a way to help your chances of obtaining a high 'loan to value' is to offer some additional security for the mortgage. In many cases, the commercial property will simply be the property that you are looking to buy.
However, you could offer the lender the additional security of another property. For example, if you own other commercial properties or a residential property, the commercial lender could place a legal charge against one of these other assets in order that they benefit from additional security for the lending.
Increasing The Mortgage Term: Another method of increasing the commercial mortgage amount is to take the borrowing out over a longer term. By taking the commercial loan over a greater number of years, you will reduce your monthly repayments. The longer the term of the loan; the lower your monthly repayments will be and this makes the loan more affordable to you.
Tenant Purchase: Another way that you may be able to borrow a higher proportion of the purchase price of a commercial property us to buy it at a discount. For example, if you have leased premises for a long time, the landlord may decide to sell the property to you at a knock down price. Remember however that the valuation would have to confirm the market price.
Depending on the size of the discount, your commercial lender may offer you 100% of the purchase price as this only represents a lower percentage of the actual value of the property. If the surveyor confirms that the property is in a popular location and will sell easily, the lender may be even more inclined to allow you to borrow against the valuation rather than the purchase price.
Value Added: If there is the possibility that you can reconfigure the site, or extend or renovate the commercial property, a lender may consider a higher mortgage. This is true if you plan to add value to the property through the improvements and that these renovations will attract a higher class of tenant.
To undertake large scale renovations, you would need to be certain that the improvements would command a higher level of rental income from any potential tenants. You should research the market carefully in order to ensure you will maximise your rental return. If it is feasible then you may be able to borrow the money you need on a commercial development loan which could later be repaid by a high LTV commercial mortgage.
So, if you are looking to borrow 100% or thereabouts on a commercial mortgage, it may still be possible. If you use the hints and tips we have outlined above then it may very well be possible for you to secure the borrowing you need.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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